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Money, Stocks, and Bonds... oh my!

S

Spooner

Lifer
So I'm thinking of taking my tax refund and opening up a stock portfolio with one of those online brokerage firms.

Here's the catch: i don't pretend to know the first thing about trading stocks. I've always been pretty interested in the market, but my stupid school never offered any good classes in it and i never really had a large enough nestegg to play around with.

Questions:

1) where's a good place to get some knowledge about what to even do and what all the terms mean when playing the market?
2) what news/research sites are best to subscribe to in order to keep up with the news of the market
3) which online brokerage firm is the best? (trade prices, customer service, research, etc...)
4) is it even good to use these online firms, or should i get a real broker?

I know I'm opening up a wide array of discussion here, but... i guess that's the point. 😉
 
The smartest thing you can do with your tax refund, if you want to save it, is start an IRA. You could go through an online brokerage or you can go direct with a company does mutual funds. I would recommend going direct, as you will not be selling and trading this money once it is invested.

As far as IRA's go, there are two types:

Traditional IRA: This gives you a break off your taxes up front and when the money is pulled out for retirement, it is taxable as income. Growth is tax free.

ROTH IRA: This gives you NO tax break. The advantage here is, when the money is pulled out for retirement, it is NOT taxable! Growth is tax free.

While I will not recommend any one specific company, as I encourage you to do your own research, I would seriously consider looking at the fund chocies American Funds offers.

Now as far as next year...

If the company you work for has a 401K, it's time to start contributing. There are many benefits: immeadite tax savings, tax-free growth, and many employeers will match your contribution up to a certain percentage. When withdrawls are taken from a 401K for retirement, they are taxable as income.

So let's say you have a job where you're working 12 months out of the year and your employeer takes your 401K contribution out once a month. (Note: 401K's are also typically invested in mutual funds.) Assuming your financial situation will stay the same next year and you will get a similar tax refund, this is what you can do:

When you invest in a 401K, the money is pretax. For example, if you had a $100 per month you would like to invest out of your take home pay, depending on your tax bracket, you could put $150 per month into your 401K and you would see your check drop $100.

So how does that relate to your tax refund? Good question. Let's say you got a refund of $1,200. That means, every month you overpaid your taxes by $100 per month ($1,200 refund divided by 12 months = $100 per month). That means you can have your employeer take $100 of your take home pay + the tax savings by deferring your taxes (this is based off your income and the number of exemptions you claim on your paycheck) and come next April 15th, you should get no refund and have $1,200 + recouped tax money + any employeer contribution in your 401K. So if you're in a high tax bracket and picking up $50 in taxes for every $100 you contribute, in 12 months you would have $1,500. Pretty slick deal!
 
Okay, I appreciate the long descriptions on IRAs... but I'm 22, I'm not opening one of those yet. I already have a 401k that's making a decent return actually.

My question was on playing the market with one of these online brokerages.
 
I have Ameritrade, largely because market trades are $8 and limit trades are $13. It has access to Canadian stocks too.

Stocks = part ownership of a company
Bonds = some entity owes you money (they borrowed it from you and pay you interest).

Some investment sites:
Motley Fool
Andrew Tobias
How Stuff Works
About.com
F*ckedCompany for what NOT to invest in.

Finally, the fact that you are 22 is one of the best reasons to start an IRA. Compound interest is WAY in your favor.
 


<< The smartest thing you can do with your tax refund, if you want to save it, is start an IRA. You could go through an online brokerage or you can go direct with a company does mutual funds. I would recommend going direct, as you will not be selling and trading this money once it is invested.

As far as IRA's go, there are two types:

Traditional IRA: This gives you a break off your taxes up front and when the money is pulled out for retirement, it is taxable as income. Growth is tax free.

ROTH IRA: This gives you NO tax break. The advantage here is, when the money is pulled out for retirement, it is NOT taxable! Growth is tax free.

While I will not recommend any one specific company, as I encourage you to do your own research, I would seriously consider looking at the fund chocies American Funds offers.

Now as far as next year...

If the company you work for has a 401K, it's time to start contributing. There are many benefits: immeadite tax savings, tax-free growth, and many employeers will match your contribution up to a certain percentage. When withdrawls are taken from a 401K for retirement, they are taxable as income.

So let's say you have a job where you're working 12 months out of the year and your employeer takes your 401K contribution out once a month. (Note: 401K's are also typically invested in mutual funds.) Assuming your financial situation will stay the same next year and you will get a similar tax refund, this is what you can do:

When you invest in a 401K, the money is pretax. For example, if you had a $100 per month you would like to invest out of your take home pay, depending on your tax bracket, you could put $150 per month into your 401K and you would see your check drop $100.

So how does that relate to your tax refund? Good question. Let's say you got a refund of $1,200. That means, every month you overpaid your taxes by $100 per month ($1,200 refund divided by 12 months = $100 per month). That means you can have your employeer take $100 of your take home pay + the tax savings by deferring your taxes (this is based off your income and the number of exemptions you claim on your paycheck) and come next April 15th, you should get no refund and have $1,200 + recouped tax money + any employeer contribution in your 401K. So if you're in a high tax bracket and picking up $50 in taxes for every $100 you contribute, in 12 months you would have $1,500. Pretty slick deal! >>



dirtyboy, AFAIK, a traditional IRA works like this:

you work. you get taxable income. pay taxes. make $2000 annual contribution out of whats left.

you are now retired and cashing in. the $2000 you put in x many years ago becomes $10,000. you now have $10,000. now you get to pay taxes on the gain (8,000). how is the growth of your money tax free? it is simply tax deferred until your retirement. A Roth IRA to my knowledge is the only investment vehicle that gives you a tax free gain on your investment, after you pay the taxes up front on your income.
 


<< Okay, I appreciate the long descriptions on IRAs... but I'm 22, I'm not opening one of those yet. I already have a 401k that's making a decent return actually.

My question was on playing the market with one of these online brokerages. >>

to let you know roth ira's work best when you start young, like 22.
 
honestly, even though a roth IRA is better to stary young, how many people 18-25 want to hawk $2k (soon to be $3k?) into a fund thy're never going to see for another 40 years?

its a moot point. the people that want to save will save, the ones that wont just wont.
 


<< My question was on playing the market with one of these online brokerages. >>


That's more of a hobby than an investment IMHO, but the excitement of stock picking makes it worthwhile for some people.

Since I'd rather be reading a book, watching a movie or playing a game after work than doing research I have my "stocks" money in mutual funds, about 2/3 of it in S&P 500 index funds (vanguard and schwab). In case of some short-term emergency I also have cash in a decent savings account (eTradeBank) and a couple of CDs. Job security is much less of a worry when you have 6 months or more of living expenses where you can get at it easily 🙂
 


<< dirtyboy, AFAIK, a traditional IRA works like this:

you work. you get taxable income. pay taxes. make $2000 annual contribution out of whats left.

you are now retired and cashing in. the $2000 you put in x many years ago becomes $10,000. you now have $10,000. now you get to pay taxes on the gain (8,000). how is the growth of your money tax free? it is simply tax deferred until your retirement. A Roth IRA to my knowledge is the only investment vehicle that gives you a tax free gain on your investment, after you pay the taxes up front on your income. >>



You are correct. I was speaking from the angle that you don't pay taxes on the growth or dividends each year. You don't pay income taxes on the lump sum at retirement, just on the withdrawls. If you paid it as a lump sum, it would defeat the purpose of having one!
 
well, the growth of your money isnt realized until you retire, in which case you get slammed on the capital gains. thats why i went roth early.
 


<< Valid point. It's tought to make that decision when I'm trying to pay all my bills. >>



If you're having trouble making ends meet, you shouldn't be investing in the market! 🙂
 


<<

<< Valid point. It's tought to make that decision when I'm trying to pay all my bills. >>



If you're having trouble making ends meet, you shouldn't be investing in the market! 🙂 >>



hes not investing in it. hes playing it. there is a difference
 


<< My question was on playing the market with one of these online brokerages. >>



Your question is vague, which is why you've gotten responses that you weren't expecting. If you want to play the market, go to one of the online brokerages, fill out an app, send them your money. I don't know if it is still true today, but I believe many of them require a substantial amount to open an account -- like $2,000.

What are you objectives?

A. You just want to gamble away your money.

B. You want to break even.

C. You want to get rich quick because you think you can pick a hot stock.

Now let me answer your questions...

1) where's a good place to get some knowledge about what to even do and what all the terms mean when playing the market?

Buy low, sell high. If you're not familiar with market terms, read a book. If you're going to be putting your hard earned money in stocks, you ought to know something about them, or like many, you'll lose it.

2) what news/research sites are best to subscribe to in order to keep up with the news of the market

The online brokerage firms usually have this available for free.

3) which online brokerage firm is the best? (trade prices, customer service, research, etc...)

I dunno? Remember, you can't get everything. So the low price one may not have the level of service you want. I have seen various reviews in magazines or somewhere online about them. Look around.

4) is it even good to use these online firms, or should i get a real broker?

Depends on how much money you have. You will typically pay alot more to have a real broker and if you only have a few thousand, they may not waste their time with you. So go with online. That way you can trade all you want.
 


<<

<<

<< Valid point. It's tought to make that decision when I'm trying to pay all my bills. >>



If you're having trouble making ends meet, you shouldn't be investing in the market! 🙂 >>



hes not investing in it. hes playing it. there is a difference >>



If he's going to play, he'd have more fun in Vegas! 🙂
 
I think I might try one of those "virtual portfolio" things for free to see how my $2k would fare

And, yeah, I think I'm looking for the middle ground of playing/investing in the market. I'm looking for things I can buy and cash out with a gain in 3-4 months.
 

<< dirtyboy, AFAIK, a traditional IRA works like this:

you work. you get taxable income. pay taxes. make $2000 annual contribution out of whats left.

you are now retired and cashing in. the $2000 you put in x many years ago becomes $10,000. you now have $10,000. now you get to pay taxes on the gain (8,000). how is the growth of your money tax free? it is simply tax deferred until your retirement. A Roth IRA to my knowledge is the only investment vehicle that gives you a tax free gain on your investment, after you pay the taxes up front on your income. >>



You are correct. I was speaking from the angle that you don't pay taxes on the growth or dividends each year. You don't pay income taxes on the lump sum at retirement, just on the withdrawls. If you paid it as a lump sum, it would defeat the purpose of having one!

Hi. 🙂

Just an update: in 2002 the limit for traditional IRA contributions will be 3 K. In 2005 it will increase to 4 K, and by 2008 it will be 5 K. After that, it will be adjusted with inflation in $500 increments.

Cheers ! 🙂
 


<< I think I might try one of those "virtual portfolio" things for free to see how my $2k would fare

That would be very wise!

And, yeah, I think I'm looking for the middle ground of playing/investing in the market. I'm looking for things I can buy and cash out with a gain in 3-4 months. >>



Making money is always preferable to losing money! 🙂
 
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